Today in London at the Open Government Partnership Summit, Prime Minister Cameron announced his government’s plans to make public, national registers of the ‘true’ , ‘shell’, ‘real’ or ‘beneficial’ owners of companies.

In the company of the Presidents of Tanzania and Liberia, Cameron said that “a list of the owners of “shell” companies where firms keep money offshore to avoid tax will be published to discourage tax evasion.”

He went on to say that, “the cloak of secrecy surrounding company ownership had lead to questionable practice and downright illegality”; and that “illegality that is bad for the developing world – as corrupt regimes stash their money abroad under different identities…is bad for Britain’s economy too – as people evade their taxes through untraceable trails of paperwork.”

No Tax Base – No Low Tax Case

Using this new mantra – also unveiled today – in making the case for the adoption of similar legislation by his G20 colleagues, Cameron has seemingly positioned publicly accessible registers as the solution to all that ails the developing world by commenting that “the UK is helping deprive corrupt politicians and criminals of the use of anonymous companies to hide their real identities. This will go a long way in curbing corruption, money laundering, drug trafficking, tax evasion and financial crime responsible for the continued loss of much needed wealth from the world’s poorest countries.”

G8UK Transparency Agenda

Cameron has been talking about public registers of beneficial owners even before he hosted this year’s G8 Summit in Northern Ireland. His 3T agenda, based on tax, trade and transparency was the forerunner to this year’s endorsement by the G20 of automatic exchange of tax information as the new global standard which the OECD Global Forum has been charged with implementing; thereby supplanting the existing rule that advocates treaty-based bilateral exchanges ‘on request’.

Cameron also registered some success under the second ‘T’ – trade – with the recent launch of EU-US Free Trade talks, even as concerns about the usual French ‘sensitivities in the areas of culture and farming subsidies were raised.

Now with his announcement that, not only is the UK going to establish a public register of the ultimate or ‘true’ owners of companies, but these registers to be available for public scrutiny, Cameron is trying to gain traction in the third part of his ambitious G8UK agenda.

Any takers?

It turns out that there is cause for Cameron to speak so boldly about the accessibility of public registers as this British initiative comes as the EU considers amending its anti-money laundering directive to tighten loopholes and demand that natural beneficial owners of corporations be named in a public registry.

It has also been reported that France is considering similar measures.

Even the Obama administration has promised to take action on beneficial ownership as part of its commitment under the transparency initiative called Open Government Partnership. Congress is considering legislation to create private corporate registries at state level.

Of course no word yet from other G8 members most notably Russia and Canada whose response to Cameron transparency agenda was lukewarm at best.

Who’s the ‘real’ owner anyway?

In circumstances when the UK still permits the holding of ‘bearer shares’ facilitating the opacity of company ownership, Cameron’s talk of transparency and public access was perhaps understandably greeted with horror by the ‘suits’ in London.

It is true however that the Cameron has also announced his government’s intention to abandon this lucrative plank Britain’s business brand, more than fifteen years after legitimate offshore financial centres outlawed the practice.

Unfortunately, banning proof of company ownership by the mere possession of an anonymous share certificates isn’t much help in exposing the true beneficiaries of company ownership.

In fact, while in the afterglow of the Northern Ireland Summit, UK’s overseas dependencies and the US published national action plans to give effect to the creation of registers to log the real owners of corporate vehicles, these plans do little to clarify the metrics required to determined how such a determination would be arrived at, given the several degrees of separation which can remove the company from its true owners.

But how would it work?

Nobody’s sure yet but possibilities include cross-referencing with other databases such as those held by the Passport Office and the electoral register. Alternatively, or perhaps additionally, companies could be asked to provide identification information for beneficial owners such as a national insurance number and date of birth.

What is clear however is that firms registered in Britain will come under a legal obligation to obtain and hold adequate, accurate and current information on the ultimate owner who benefits from the company – and be required to place the information on a central register that would be maintained by Companies House.

You might be forgiven for thinking that the United Nations (U.N) doesn’t care much about international tax and even less about rule-making to combat tax evasion and increase cooperation among domestic revenue authourities.

It does seem that the UN is content to observe the global debate on exchange of information and tax transparency from the ‘bleachers’. Indeed, the G8 declaration made after this year’s Summit, doesn’t once reference this international body.

That said, you might be surprised to know that within the structure of the UN is a subsidiary body of the Economic and Social Council, called the Committee of Experts on International Cooperation in Tax Matters.

Its mandate includes:

up-dating and reviewing the United Nations Model Double Taxation Convention between Developed and Developing Countries and the Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries;

providing a framework for dialogue with a view to enhancing and promoting international tax cooperation among national tax authorities and assesses how new and emerging issues could affect this cooperation; and

making recommendations on capacity-building and the provision of technical assistance to developing countries and countries with economies in transition.

In all its activities, the Committee is supposed to give special attention to developing countries and countries with economies in transition.

Recent evidence of the Committee’s work can be found in the U.N Handbook on Selected Issues in Administration of Double Tax Treaties for Developing Countries, which was the result of a joint project by the Financing for Development Office of the U.N. Department of Economic and Social Affairs; and the International Tax Compact.

Written by international tax experts, the Handbook addresses how tax treaty provisions apply in practice,describes best practices of countries in administering their treaties, and focuses on the procedural aspects of applying a treaty rather than on its substantive rules.

If all of this sounds, well, toothless and rather academic, it’s because it is.

Unlike the OECD, the UN Committee has little influence on the design and enforcement of global tax rules. It is not even a proper council within the U.N and is more akin to an advisory group. It does not craft or publish tax haven blacklists or other rankings of compliant and non-compliant jurisdictions; neither has it expressed any opinion about this widespread means of economic ostracism which may well be contrary to international trade rules.

Still the U.N Handbook may be timely with the IMF recommending that developing countries review their one-sided tax treaties with developed country tax havens, based on the OECD Model Tax Convention, to improve the ‘balance of bargain’.

Within days of my own prediction of a new OECD tax haven blacklist, France announced that it will amend its anti-tax evasion legislation to ensure that countries who do not adopt the automatic exchange of information by 2015will be ‘blacklisted’.

This means that operators located in, or realising transactions with blacklisted tax havens, will suffer tax discrimination under French law because more restrictive measures will be applied to them, than other operators. For example, dividends, interest and royalties paid to entities operating in blacklisted countries will be taxed at 55 percent; more than double the normal rate.

Justifying the government’s decision, French Finance Minister, Pierre Moscovici explained that it was to add further pressure to tax havens or jurisdictions deemed unco-operative in tax matters. He went on to point out that automatic exchange of information was gradually becoming the international standard, citing progress on the issue made at the international, European, and national level; and further advances made at the latest G8 meeting in Northern Ireland.http://lowtax.net/asp/story/front/France_Readies_Tax_Haven_Black_List____61144.html

This may not be the end of the story however, because Panama has challenged Argentina’s tax law creating a blacklist of tax havens and unco-operative countries (now repealed and replaced with a ‘white-list’ of non tax havens and co-operative jurisdictions) by lodging a complaint with the World Trade Organization (WTO). It claims that this law which allows for the punitive taxation of Argentine entities doing business with blacklisted countries, is contrary to international trade rules against discrimination of the ‘like’ businesses and ‘like’ goods and services of other member states.

Whatever the WTO decides on Argentina’s blacklist law will be applicable to France, and other WTO members, who have similar lists.

Available now: UK PM has today released a New Action Plan to Prevent the Misuse of Companies and Other Legal Arrangements. It is replete with references to trusts, beneficial ownership, the collection and sharing of information; and interestingly a proposed audit of the activities of UK trust and company service providers.

Never mind the public grandstanding about tax havens, in the lead up to next week’s G8 Summit in Northern Ireland. To stay rich, not only do the world’s eight wealthiest countries want tax havens, they need them.

By tax haven I do not mean a secrecy jurisdiction. Instead I am referring to a transparent, low or zero tax jurisdiction whose ‘right standing’ has been confirmed by the OECD in their updated ‘whitelist’ of countries in substantial compliance with international disciplines on transparency and the exchange of confidential taxpayer information. In fact, the only jurisdiction not on this list is characterised as committed to these rules but yet to implement them.

After the Vatican, this country, covering just 21 square miles (8.1sq.mi), is the world’s second least populated country, with 9,378 residents. As it continues to grapple with one of the highest rates of diabetes in the world, you can imagine that diverting national resources to fix a problem, not of their doing, may not be high on Nauru’s political agenda.

Not all tax havens are created equal, but to survive they must all remain focussed on providing value for money. Moreover, whatever their historical antecedents, population size, and whether are not they are located onshore or offshore; the members of the G8 need them.

Why? The simple reason is competition.

Although the anti-tax haven lobby spends millions trying to convince us that the single biggest cause of poverty is the tax saving shenanigans of immoral multinational corporations (MNCs); and that their primary motivation in using lawful tax avoidance measures is to take ‘food out of the mouths’ of babes’, the reason why poverty persists is just not that simple.

It is easy to preach that the only thing corporate shareholders and executives have in mind is the exploitation of local communities, reminiscent of the ‘slash and burn’ agricultural practices of the past. Indeed, if you allow the recurrent news headlines of corporate malfeasance, especially those involved in the extractive industries, to cloud your perspective, then you are apt to dismiss not as well publicized millions spent on charitable causes by these, and other MNCs.

Is this widespread corporate philanthropy driven by guilt? I don’t expect so.

Just as certain types of business practices are now accepted as unsustainable, so too is a certain kind of corporate ethos. Conglomerates now know that ultimately, the continued viability of their business model is not only dependent on customer retention and brand loyalty. What is also important is the support of the communities in which they operate and at whose behest they are able to source their raw materials.

It just makes good business sense.

The fact is, poverty is a two-sided equation. One half of the equation may be illustrated by the offering of a bribe, but that equation is only ‘balanced’ when the bribe is accepted. Corrupt public officials in the poorest countries, who watch their own people starve, while they enjoy many times a multiple of what they could ever need during their earthly existence, often lies at the heart of the poverty pandemic. This is why the Global Corruption Index is key to tackling poverty which measures the culpability of the parties, on both sides of the poverty ‘equation’, so that real solutions can be found and applied.

If we can step away from the very emotive but sound-bite worthy idea that tax havens cause poverty because they enable bribery and corruption, then maybe we can get to the real reason why MNCs employ so much time and effort in tax mitigation, and the truth about why poverty exists.

One very good reason why tax havens are used by MNCs to structure and manage their global affairs is because of the high rates of tax, principally, but not limited to, corporate income tax, in their home state, and the states where they sell their goods and services. As Apple, Google and others have explained, if the tax burden in the country where your company is set up is just shy of 40%, and the applicable taxes in the place where your goods and services are sold are also in that percentile, it makes good business sense to find a way to reduce the tax burden to manageable portions; in support of the growth of the business; and more importantly, because the generation of profits using legal means, is the company’s fiduciary obligation its shareholders.

Tax avoidance, unless it is proscribed because it is ‘aggressive’, is not unlawful. This is why in the absence of illegality; countries who complain about not getting their “fair share of taxes” invariably have to beseech companies to voluntarily pay more. This itself is another example of charitable giving by MNCs, in this case, to a state’s revenue authourity.

Why are high taxes a problem?

Competition.

MNCs are in competition for shareholders, customers and the inputs needed to create the goods and services they sell. The easiest way to improve your financial position as a company, just like the case of an individual, is to reduce your taxes. That the MNCs spend large sums of money to optimise tax savings, is testimony to the importance of the exercise and the considerable dividends it can yield.

Again, it all makes good business sense.

Where do most of the world’s biggest multinationals call ‘home’? The countries of the G8. Afterall, you don’t get to be a member of the G8 without having MNCs; that’s why these countries are rich.

It’s in the interest of the G8 countries to support their MNCs and their use of tax havens because of the many back linkages to their own economies, created by solvent companies; such as jobs, foreign currency and other revenue raising measures that can be applied to the activities of the MNCs. Equally important is their listing and cross-listing on the stock markets of the G8, which is itself another driver and indicator of national wealth.

If the G8 don’t want tax havens, then by eliminating the chief reasons why companies go ‘offshore’ they could quite easily undermine the business model of these jurisdictions. The failure of the G8 to modernise their tax laws, which continue to distort global financial markets and create the market for tax havens in the first place, means that the G8 needs low and zero tax jurisdictions; but only those that can be made acceptable to the public by demonstrating transparency and a willingness to share confidential information about their clients.

If the G8 really wants to help the poor and starving, they can do so much more if they take the focus off the size of their tax base and instead deal with the issue of hunger head on. This will not be achieved by vilifying MNCs who, the developed, developing and under-developed states need. In the end, the reason why, despite the protracted recession, the G8 countries are still the wealthiest in the world, is because of the success of their MNCs, and their use of tax havens – everybody’s not so dirty, not so secret, secret.

Canada is just not doing enough to fight tax evasion. In particular, it is alleged that the Harper-led government is resisting efforts to mandate the adoption of public registers disclosing the beneficial owners of offshore accounts and shell companies.

According to Canadians for Tax Fairness, Canada is also not as enthusiastic as they would like on the idea of automatic exchange of tax information, which has gained currency within the G-8 since the US announced its own version under FATCA.

They are hoping that next week in Northern Ireland, where the G-8 Summit takes place, Chairman of the Group and UK PM David Cameron can exert some positive peer pressure on PM Harper to support stepped up action against tax evasion.

That Canada is adopting a cautious and measured approach to the complicated problem of global finance is what the rest of the world has come to expect from this country, that has maintained a sound and enviable record in banking where others, have not.

Maybe! Sixty more countries have signed, or indicated their commitment to sign the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters (‘the Convention’). This multilateral agreement provides for spontaneous taxpayer information exchange, simultaneous tax assessments and assistance in the collection of taxes.

OECD Secretary General Angel Gurría has touted this latest wave of admissions as another winning round in the fight against tax cheats; claimed this to be another important milestone on the road to closer cooperation and more transparency; and believes that it will make the international system fair to all taxpayers.

Austria, Belize, Estonia, Latvia, Luxembourg, Nigeria, Saudi Arabia, Singapore and the Slovak Republic have all signed the Convention. While Burkina Faso, Chile and El Salvador have signed a letter of intention to sign the Convention. Belize, Ghana, Greece, Ireland, Malta, the Netherlands (including its Caribbean islands of Bonaire, Sint Eustatius and Saba), Aruba, Curaçao and Sint Maarten have all deposited their instruments of ratification. Morocco too, has recently signed the Convention.

With strong G-20 support for yet another OECD crafted agreement which, before the intervention of the G-20, lay languishing in the corridors of the Paris-based Organisation, sooner rather than later, acquisence to bilateral exchanges of information ‘on request’ will likely be insufficient to demonstrate compliance and cooperation in matters of tax transparency.

After more than five years of frenzied TIEA-making, it is perhaps little wonder that countries have grown tired of this labour-intensive, intellectually uninspired, two-by-two methodology to silence their critics and stave off threats of sanction. This is especially so since the framers of the model Tax Information Exchange Agreement (TIEA) have themselves continued to fuel doubts about the effectiveness of this brand of tax cooperation.

The shelf-life of the TIEA is fast approaching as the G-20, energized by the promise of FATCA style information exchange, hasten the adoption of more multi-lateral methods to achieve transparency and tax information exchange. In fact, ahead of the next G-8 Summit to be held this year from June 17-18 at the golfing resort of Lough Erne, Northern Ireland, UK Prime Minister and Chair of the G-8, has made clear his intention to use his tenure to push for the adoption of the EU Savings Tax Directive, as a precusor to the global adoption of automatic exchange of information standards.

Unlike international trade, multilateralism in matters of international tax cooperation is generally unheard of, as few countries are able to back the extra-territorial extension of their own domestic tax laws with the same ‘might’ as the US government. As a result, harmonization has been achieved incrementally, through bilateral negotiation.

For the over one hundred OECD Global Forum (OECD GF) members, which include some of the new signatories to the Convention, does this mean that they are now absolved from having to negotiate further TIEAs to demonstrate compliance with international standards on tax information exchange?

What about those signatories to the Convention who are not yet members of the OECD GF and have therefore not undergone a Phase 1, or Phase 2 assessment of their legal and administrative structures supportive of increased tax cooperation and transparency? Will they escape sanction from the G-20 and OECD?

What about OECD GF members still unsure about the currency of their compliance, because of their continuing participation in the periodic reporting that attends their Phase 1 and Phase 2 assessments? What is the new TIEA threshold to secure immunity from complaint? Is it now met by signature to the Convention?

Smart states must be asking themselves whether the Convention trumps TIEAs; and does it provide ‘automatic’ immunity from blacklisting and sanction by other signatories to the Convention?

Certainly, it would seem to take the pressure off jurisdictions who, for strategic economic reasons, do not want to dilute their competitive advantage by negotiating a plethora of bilateral TIEAs, instead of concluding new economic agreements, like tax treaties; especially when signing up to one multi-lateral agreement might well do the trick.

A word to offshore financial centres (OFCs) lamenting that the goal posts have again shifted in matters of international tax competition……This is no excuse not to adjust your tactics, and crying over spilled milk that has almost expired is certainly not going to help either.